Federal Mortgage Lending Laws

Federal laws set standards for mortgage lending.

A home mortgage is one of the largest credit transactions a consumer can make, and that opens the door for all sorts of issues. In the past, lenders have misled consumers about mortgage loans. Some lenders denied loans based on discrimination. Other lenders hid the truth about mortgage loan terms, including interest rates and closing costs. To address a variety of issues, the federal government enacted a series of key mortgage lending laws.

Truth in Lending

The federal act is part of the Consumer Credit Protection Act. Since 1968, it has required that lenders disclose the annual percentage rate, finance charges, amount financed, total number of payments and total sales price on a loan. The law also gives consumers three days to cancel a loan before it becomes permanent. In addition to requiring lenders to disclose information at the time the loan is offered, the Truth in Lending Act also has requirements for advertising. These requirements ensure that lenders do not mislead consumers.

Equal Credit Opportunity Act and Fair Housing Act

The Equal Credit Opportunity Act, which was passed by Congress in 1975, bans lenders from discriminating against consumers. Before the law, some lenders denied certain individuals loans based on discrimination. The law now states that lenders cannot discriminate based on race, color, sex, religion, national origin, age or receipt of public assistance. To ensure compliance, the federal government reviews application forms to ensure that they do not pose unacceptable questions. The Fair Housing Act also prohibits discrimination in mortgage lending. In addition to prohibiting lenders from refusing to offer loans, the Act prohibits the lenders from providing information about loans and from imposing different terms or conditions on loans. For example, a lender cannot assess a higher interest rate only because the borrower is Jewish or elderly.

Real Estate Settlement Procedures Act

On Jan. 1, 2010, new RESPA regulations took effect. These laws regard closing costs on mortgage loans and settlement procedures. The laws require that consumers receive disclosures at various points in a mortgage transaction. The laws also outlaw kickbacks that increase the cost of the mortgage loan. The U.S. Department of Housing and Urban Development enforces RESPA laws. One important part of RESPA is that it requires lenders to provide a “Good Faith Estimate” of the likely closing costs that will be required on a mortgage loan. Prior to the law, some lenders were deceptive about the true closing costs for mortgage loan products.

New Homeowner’s Protection Act

In 1998, Congress passed the Homeowner’s Protection Act, which took effect on July 29, 1999. HPA gives consumers the right to request the cancellation of PMI when they pay down their mortgage loans to 80 percent or more of the home’s value at the time of the loan. To qualify, homeowners must have not made any payments 30 or more days late in the past year or 60 days late within the past two years. Lenders also are allowed to request evidence that the value of the home has not declined below its original value and that there is no second mortgage on the home.

Nationwide Licensing System and Standards

In 2008, the federal government passed legislation requiring mortgage lenders to obtain licensing. The special licensing is designed to improve ethics and adherence to federal and state laws. The licensing provision was designed to stop lending practices that contributed to a collapse in the residential real estate market. Additionally, Congress set new standards that require all lenders to provide training, testing, and criminal and credit screening of employees. The standards took effect in 2010. The licensing requirement prior to the new standards was less stringent. Under the previous law, only the lending institution needed to obtain a license. Individual employees were not required to obtain their own licenses.

About the Author

Based in Central Florida, Ron White has worked as professional journalist since 2001. He specializes in sports and business. White started his career as a sportswriter and later worked as associate editor for Maintenance Sales News and as the assistant editor for "The Observer," a daily newspaper based in New Smyrna Beach, Fla. White has written more than 2,000 news and sports stories for newspapers and websites. He holds a Bachelor of Arts degree in journalism from Eastern Illinois University.